Tanker owners are looking to the US Gulf Coast as renewed tensions in the Strait of Hormuz threaten to disrupt Persian Gulf crude flows, although tepid VLCC activity outside the region and strong yields on Brazilian-Chinese routes are tempering any immediate rise in US export freight rates.
US President Donald Trump’s July 13 announcement of a blockade targeting Iranian ships and the imposition of a 20% security premium on crossing the Strait of Hormuz — which was later replaced by trade deals — raised concerns about the reliability of Middle East crude oil supplies.
Iran also said the strait was closed again, citing US violations of the agreed-upon memorandum of understanding. Total crossings rose to 17 ships on July 13 from 11 ships the day before, but were still well below normal levels, according to data from S&P Global Commodities at Sea (opens in a new tab). Almost all of the ships that crossed on July 13 were linked to Iran or subject to US sanctions.
Crude oil futures settled at a one-month high on July 14, as tensions in the Middle East and ongoing attacks on shipping in the Strait weighed on supply expectations. West Texas Intermediate crude for August on the New York Stock Exchange settled at an increase of $1.20 per barrel, reaching $79.34 per barrel, and the price of Brent crude for September on the New York Stock Exchange rose $1.43 per barrel to end the session at $84.73 per barrel.
The uncertainty is expected to push more weight toward the USGC as Persian Gulf barrels become unstable, although shipbrokers said the impact remains unclear given Trump’s history of political setbacks.
“Oh, yeah, I’m kind of turning a blind eye to all of that because he might undo it next week,” one shipbroker said on July 13. “You never know with him — there’s a lot of rug pulling already.”
Shipping is fixed
Platts assessed the record 70,000 metric ton USGC-transatlantic route at 240 on July 14, up 10 from July 13, as shipbrokers reported high bids for transatlantic voyages. However, one source warned that USGC and transatlantic arbitrage “may have now closed – so we need to keep an eye on that.”
Platts evaluated freight for the 270,000 metric ton VLCC USGC-UK Continent route for typical loading dates of July 29-August. 28 for a total of $8.1 million on July 14, unchanged from July 13.
The price of the 270,000 metric ton VLCC USGC-China fell by US$50,000 to US$17.25 million on July 14, while the price of the 260,000 metric ton VLCC Brazil-China settled at $153, in line with market calls.
The USGC VLCC market has remained static and largely untested, with few new inquiries reported. Shipbrokers said the regional supply profile remained balanced, with limited signs of immediate pressure from the brakes of incoming ships.
Activity picked up last week after tensions flared, with several transatlantic Aframax shipments scheduled for July 11, shipbrokers said. However, VLCC testing outside the USGC has been quieter recently, with the Brazil-China race yielding much better returns.
China’s crude oil import volume fell by 41.3% year-on-year in June, a sharper decline than the 29% contraction in May, according to ANZ Research. Oil prices fell to about $70 a barrel by the end of June, about 20% lower than the peak they reached in early June following the escalation of the conflict in the Middle East.
ANZ said lower prices likely encouraged China to increase its crude oil purchases in June, although that may not be fully reflected in customs import data after the four- to five-week shipping period.
“We therefore expect crude oil imports to rebound in late July,” the bank said.
The program covers Brazil
A large share of Brazil’s recent VLCC export program has already been capped, leaving fewer stems available to test the market.
Meanwhile, the steady stream of Brazilian crude moving aboard VLCCs continued to pull cargoes away from the VLCCs, contributing to the erosion of VLCC cargo levels and promoting a softer tone across the Atlantic Basin.
“USGC’s modern ship list is weak, and ships from the East are holding back from the West’s weight,” one shipbroker said.
When the w161 was booked on the Brazil-China route on July 9, a broker said the USGC-China flight would need to reach $21.25 million by comparison based on earnings, but freight was only discussed in the $17 million-$18 million range at the time.
Shipbrokers said owners maintained semi-optimistic thoughts because more active markets in the Persian Gulf and Brazil were supporting sentiment.
VLCC activity out of the USGC has declined over the past two or three weeks, with fewer liner appearances coming from the east.
Volumes coming out of the USGC in July were weak, one shipowner said, adding: “Now the question is how much volume are we going to get.”
Another shipbroker previously said the USGC had remained quiet, and “anything attempted to be moved over the past two weeks was purely opportunistic.”
The Persian Gulf market has remained flat, with owners reluctant to discount well-certified modern tonnage due to the lack of modern standard installations, shipbrokers said.
“Fundamentals remain supportive as relatively few modern ships are expected to arrive from the east,” one shipbroker said on July 13. “If freight inquiries improve in the coming days, the current load profile leaves the market well positioned for a firmer correction.”
source: Platts
